Telefónica and Hutchison Whampoa face what Ovum recently described as a "fraught" battle with competition authorities as they seek approval to merge their UK businesses, O2 UK and Three UK.
It will be several months before the market knows what the regulatory decisions will be for both BT's planned acquisition of EE and the O2 UK deal, and what conditions will be attached to the two deals to secure approval. While the Competition and Markets Authority in the UK is vetting BT's planned EE deal, the merger of O2 UK with Three UK is likely to face scrutiny by EU anti-trust officials.
EU approval of Hutchison Whampoa's purchases of O2 Ireland and Orange Austria, and of Telefónica's acquisition of E-Plus in Germany, has certainly encouraged the market to believe that the European Commission is looking more favourably at M&A.
However, the EC's new competition commissioner, Margrethe Vestager, hinted in March that M&As which reduce the number of network operators in individual member states could face tougher scrutiny after initial evidence from markets where consolidation has been allowed shows consumer prices are rising.
Certainly, the ongoing task is to ensure that consumer mobile prices do not rise to a level that makes them unaffordable for average households--particularly in less affluent parts of Europe. However, recent figures highlight the degree to which mobile revenues for operators in Europe have fallen in recent years, reflecting the tough market conditions that operators have faced.
Indeed, Kester Mann, principal analyst at CCS Insight, said in a research note that he was "amazed to discover" that the four leading U.S. carriers--AT&T, Sprint, T-Mobile and Verizon--generated more revenue last year than the 200 European operators combined.
Citing figures from GSMA Intelligence, Mann further noted that mobile revenue in Europe was nearly 50 per cent higher than in the U.S. just five years ago. "It's fallen by more than 10 per cent since then--the result of tough EU legislation, the weak economy and rock-bottom tariffs," he commented.
In contrast, total mobile revenue in the U.S. was more than 35 per cent higher in 2014 than in 2009, "eclipsing the whole of Europe for the first time despite a population less than half the size," Mann added.
Mann's overall assessment is that the trend "still highlights the urgent need for more sympathetic regulation that offers more incentives for investment," and noted that regulation has been much more lenient in the U.S.
In his view, Europe should consider a "long-term strategy of consolidation to a much smaller number of leading operators that span the major countries in the region."
"The balance between encouraging investment and ensuring affordable pricing is a tough juggling act for regulators, and one that will determine the fortunes of operators on both sides of the Atlantic in the coming years," Mann observed.-Anne